Upstart Holdings Stock Takes a Dive After Disappointing Guidance

Upstart Holdings (ticker: UPST) stock tumbled on Wednesday as the company's guidance for the third quarter fell short of expectations. This downturn came after a significant rally earlier this year for the artificial-intelligence lending company.

In premarket trading on Wednesday, Upstart shares were down 18% at $42.37. The stock had experienced an impressive fourfold increase in value in 2023 before this recent setback, thanks to a positive earnings update that put pressure on short-sellers.

Upstart announced on Tuesday that they expect $140 million in revenue and $5 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter. Unfortunately, these numbers fell below the market's expectations of $155 million in revenue and $9.6 million in adjusted EBITDA.

During an earnings call, company executives revealed that near-term growth may be limited due to banks' cautiousness towards lending and investor skepticism surrounding loan portfolios. These factors are restraining Upstart's expansion plans.

For the second quarter, Upstart recorded a net loss of 34 cents per share, an improvement from a loss of 36 cents in the same period last year. On an adjusted basis, the company actually earned 6 cents per share, surpassing analysts' predicted loss of 7 cents.

Second-quarter revenue totaled $136 million, down from $228.2 million in the previous year but in line with analysts' projections.

While many investors may be disappointed by Upstart's current performance, BTIG analyst Lance Jessurun remains optimistic about the company's prospects. He noted, "We continue to see strong adoption among bank/credit union partners, improving loan performance, and expected cash flows relative to targeted levels." Jessurun lowered his target price for Upstart's stock to $64 from $72 but still maintains a Buy rating.

Overall, Upstart Holdings faces some challenges in the short term, but its strategic partnerships and potential for loan portfolio growth provide reason for continued optimism.